One of the important, but also annoying, aspects of cryptoassets is the extent of ideology underpinning the whole community. Satoshi’s white-paper, which kicked off all of this, is explicitly libertarian in nature, extolling the virtues of a currency beyond the reach of any government. Beyond that, industry participants, especially the founders and creators from the early days also have a visionary bent to their positioning. This is exciting but can also be very distracting. As we have noted, the early days of the Internet also had a similar strain of Utopian thinking. For those of us who remember the 1990’s Bubble, hearing today’s strain of ‘Blockchain will change everything’ can be grating. On the other hand, the Internet did change a lot of things. So the opposite reaction, dismissing all things blockchain, seems short-sighted.
Among the skeptics, one of the greatest targets of criticism is some strain of “Bitcoin is just made up. It can’t be worth anything.” Admittedly, it is very hard to buy anything in the physical world with Bitcoin today. A few retail e-commerce sites once accepted Bitcoin payments, but most of the mainstream sites ceased doing so in the volatile run-up of Bitcoin last year. So a common complaint is that Bitcoin is only used to buy other cryptoassets or some form of illicit goods.
Our take is that this view misses the point. Retail acceptance of Bitcoin will come with time as volatility decreases. But there is a more fundamental point – what is any currency worth? The Federal Reserve Bank of St. Louis recently published a post noting that there is no intrinsic value to the pieces of linen and paper we carry around in our wallets. The US dollar, or any other ‘fiat currency’ is a giant, collective act of faith. We all believe dollars are worth something, and so they are. There is no reason that Bitcoin is any different.
Among cryptoasset strong believers lies a mistrust of governments. They regularly cite past periods of hyper-inflation in once-strong economies. There is an ongoing, live example of this in Venezuela, whose government has inflated its currency to essentially worthless. There are signs (and here and here) that Venezuelans are turning to crypto currencies to protect their savings. Someday, Venezuela’s economy and currency will right itself, but at that point, the genie will be out of the bottle, and we expect for Bitcoin to remain a store of wealth there. As other countries encounter their own bouts of economic madness, this pattern will likely be repeated and slowly Bitcoin adoption will grow.
Our point in all of this is that over time Bitcoin, or some other token, has the ability to slip into the cracks of broken fiat currencies and build a toehold. Bitcoin, in particular, is built to withstand inflationary pressure, and there is no central governing body that can dictate the printing presses change this. All of that looks to us like a slow but steady path for the adoption of cryptoassets broadly. No one will have to proclaim Bitcoin is now the currency, but instead it will gradually be used more and more widely.